SBJ/June 4 - 10, 2001/No Topic Name

Structure still shifting at SFX

The restructuring of SFX Entertainment Inc. will continue this week when it announces the consolidation of corporate consulting and client services divisions, rebranding them under the name CMI.

This new division had pro forma revenue of $20.5 million last year, the company said, and will now be led by general manager David Paro, who was the head of SFX's sports and entertainment consulting practice.

It will be one of the few divisions of SFX to operate under a separate brand name and will compete in the space occupied by such larger marketing agencies as McCann-Erickson's Momentum Worldwide and Omnicom's GMR Marketing.

"We're trying to make sure we fit logically but somewhat separately with SFX," Paro said. "We're creating a marketing services company that really focuses in on the space in which SFX is strong — lifestyle pursuits like entertainment and music and sports. But we are going to be autonomous enough to do what we need to do on the consulting side to deliver on an objective basis."

Paro said just less than half of CMI's revenue will come from sports.

SFX derives most of its income from promoting live entertainment events and selling sponsorships and media, along with representing individual athletes. It is a wholly owned subsidiary of Clear Channel Communications, a $5.8 billion (2000 revenue) owner of television stations, radio stations and outdoor advertising. Almost every dollar that comes through Clear Channel's door stems from selling advertising inventory or tickets or other sales-based commissions.

Conversely, the divisions that will make up CMI derive their revenue from fees charged on an hourly or project basis. They represent less than 3 percent of SFX's total revenue, which was about $900 million last year, but list some of America's largest blue-chip organizations as clients.

Those clients include Lowe's, Ford and McDonald's on the motorsports side, Staples and Hershey Foods for general consulting and the Coca-Cola Co. and R.J. Reynolds for on-site promotions.

CMI, which gets its name from a marketing firm already owned by SFX, will now encompass all or pieces of four companies acquired by SFX during the last several years: The Cotter Group, a motorsports-oriented marketing and public relations firm; ProServ, whose consulting group was headed by Paro before its parent company, The Marquee Group, was bought by SFX; Heffernan Interactive Group, an Atlanta based marketing firm acquired last year; and CMI itself.

CMI, formerly Contemporary Marketing International, was originally the marketing arm of a St. Louis-based concert promoter acquired by SFX in 1998, one of many former independent concert promoters that came together to form the backbone of SFX.

When SFX bought Heffernan Interactive Group last year, it was immediately folded into CMI, with founder Lee Heffernan put in charge of the combined organization. It was run out of offices in Atlanta and ones in East Rutherford, N.J., formerly occupied by SFX-acquisition Integrated Sports International.

Heffernan and Cotter Group founder Tom Cotter will now both report to Paro as managing directors.

Up until the first of this year, all of SFX's sports holdings were part of the company's Sports Group, including athlete representation, property sales and consulting divisions, as well as event and television arms. SFX then spun off its athlete division into a semi-autonomous company, eventually breaking it up into individual agencies devoted to particular sports. The rest of the SFX Sports Group was scattered into new or existing divisions throughout SFX, with both the Cotter Group and Paro's consulting division falling under the general marketing unit, headed by Paul Balzer.

Balzer will continue to oversee Paro and CMI.

Many of the entrepreneurs who have sold their companies to SFX over the years have left the company after short stints under the corporate umbrella. Cotter said he expects to stay.

"This is what I do for work and for fun," he said.

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